City of Hammond v. Herman & Kittle Props., Inc.

• Decision Date: 15 March 2019
• Docket Number: Supreme Court Case No. 19S-PL-148
• Citation: 119 N.E.3d 70
• Parties: CITY OF HAMMOND, Appellant (Plaintiff) v. HERMAN & KITTLE PROPERTIES, INC., Appellee (Defendant) and State of Indiana, Appellee (Intervenor)
• Court: Indiana Supreme Court

119 N.E.3d 70

CITY OF HAMMOND, Appellant (Plaintiff)

v. HERMAN & KITTLE PROPERTIES, INC., Appellee (Defendant)andState of Indiana, Appellee (Intervenor)

Supreme Court Case No. 19S-PL-148

Supreme Court of Indiana.

Argued: September 13, 2018

Filed March 15, 2019

Rehearing Denied May 28, 2019

ATTORNEYS FOR APPELLANT: Bryan H. Babb, Bradley M. Dick, Bose McKinney & Evans LLP, Indianapolis, Indiana

ATTORNEYS FOR APPELLEE: Steven C. Shockley, Russell C. Menyhart, Taft Stettinius & Hollister LLP, Indianapolis, Indiana

ATTORNEYS FOR INTERVENOR: Curtis T. Hill, Jr., Attorney General of Indiana, Thomas M. Fisher, Solicitor General, Frances H. Barrow, Julia C. Payne, Deputy Attorneys General, Indianapolis, Indiana

Rush, Chief Justice.

Article 4, Section 23 of the Indiana Constitution forbids special legislation—laws that apply only to a specific class—if a general law can be made applicable. Our case law has underscored two important, but countervailing, points: while the drafters of the 1851 Constitution sought to curb the spread of special legislation throughout the state, special laws are sometimes necessary.

Our analysis of special legislation begins with the oft-stated presumption in favor of a statute's constitutionality. With that presumption in mind, we then determine whether the statute's proponent has met its burden to show that a general law cannot be made applicable. This burden is met by demonstrating that an affected class has unique characteristics that justify the particular form of differential treatment provided by the special law. Given the overarching presumption in favor of the law's constitutionality, this burden is low—but it is still a burden that the proponent of the law must meet.

Here, a special law singles out the cities of Bloomington and West Lafayette for preferential treatment. That law is the "Fee Exemption," a provision in Indiana Code section 36-1-20-5 that allows those cities to charge local landlords any amount to register rental properties. All other Indiana localities, meanwhile, are restricted to charging only $ 5 under another provision—the "Fee Restriction"—found in the same statute. The Fee Restriction was born of legislative concern that rental-registration fees statewide were negatively impacting housing affordability and rental development.

Unhappy with the special treatment afforded to Bloomington and West Lafayette, the city of Hammond challenged the Fee Exemption as unconstitutional under Article 4, Section 23. Hammond argues that the Fee Exemption is amenable to general applicability throughout the state. The city further argues that the Fee Exemption is not severable from the rest of Indiana Code section 36-1-20-5 and so the entire statute, including the Fee Restriction, must be struck down.

Both the State and Herman & Kittle Properties—a Hammond landlord—defend the Fee Exemption's constitutionality. They contend that the statute's special treatment is warranted by three characteristics unique to Bloomington and West Lafayette: the cities' high percentage of renter-occupied properties, their large universities that draw young and unsophisticated renters, and their long-running rental-fee programs. But simply pointing to these characteristics is not enough to overcome the burden placed on a law's proponents. The State and Herman & Kittle also needed to establish a connection between the cities' alleged uniqueness and the Fee Exemption—by explaining how the unique characteristics justify that special treatment. Since the law's proponents did not carry their burden here, the Fee Exemption is unconstitutional special legislation that must be struck down.

Although the Fee Exemption is unconstitutional, the remainder of Indiana Code section 36-1-20-5 —including the Fee Restriction—remains in force. This is because, by statute, the absence of a nonseverability clause triggers a presumption in favor of severability that Hammond failed to overcome. Accordingly, the Fee Restriction operates statewide, limiting all political subdivisions' rental-registration fees—including those of Bloomington and West Lafayette—to no more than $ 5 per rental unit.

Facts and Procedural History

In recent years, local programs that charge fees for required inspection or registration of rental units have become a subject of growing legislative interest. As more Indiana political subdivisions began enacting rental-fee programs, some established programs started raising their per-unit fees.

A flurry of legislative activity to regulate these programs eventually culminated in the current version of Indiana Code section 36-1-20-5. Two provisions of that statute operate in concert to restrict all municipalities from charging more than a $ 5 rental-registration fee—all except Bloomington and West Lafayette.

Hammond challenged the "Fee Exemption" provision of Section 36-1-20-5—the part that exempts the two cities from the $ 5 cap—as unconstitutional special legislation. Before addressing the merits of that claim, we first turn to the relevant facts and complex legislative history that gave rise to the dispute.

I. Hammond's rental-fee programs

To protect the public health, safety, and general welfare of the city, Hammond created two programs—an inspection program and a rental-registration program. Both programs charge fees for rental units.

The inspection program was created in 1961. It authorized city officials to inspect all dwelling units—both owner-occupied and rented. And it specifically required a $ 5 annual inspection fee for hotels and rooming houses.¹

Decades later, in 2001, Hammond created its rental-registration program. That program required owners of rental housing to register their units with the city and to pay a per-unit $ 5 annual registration fee.

The city then increased the fee twice over the next ten years—to $ 10 in 2004, and to $ 80 in 2010.

The eight-fold increase was Hammond's response to the 2010 state constitutional amendment placing caps on property taxes, including a 2% cap on rental properties. That amendment led to substantial savings for landlords but also significantly strained many municipal budgets—especially for municipalities, like Hammond, whose tax bases were shrinking.

II. Other rental-fee increases and legislative response

Hammond was not the only municipality to address fiscal restraints by way of rental-unit fees. East Chicago, Griffith, Munster, Nappanee, and Speedway adopted programs to increase rental-fee revenue before the tax caps went into effect. After 2010, Bloomington joined Hammond in raising rates; and Crown Point, Evansville, and Valparaiso started charging rental-unit fees.

A. House Bill 1543

In 2011, the year after the tax caps took effect, the General Assembly introduced House Bill 1543, which added a chapter to the Indiana Code: Chapter 36-1-20, "Regulation of Residential Leases." As introduced, the bill included a provision that would have barred a number of rental-unit inspection fees and would have banned political subdivisions from requiring rental-unit registration.

That provision, however, was left out of the final bill. As enacted, Chapter 36-1-20 allowed cities to collect inspection and registration fees. See P.L. 212-2011, § 1 (codified at Ind. Code § 36-1-20-3 (Supp. 2011) ). But the amount collected had to be placed "in a special fund dedicated solely to reimbursing the costs reasonably related to services actually performed by the political subdivision that justified the imposition and amount of the fee." Id. Notably, the new statute applied statewide and did not restrict how much municipalities could charge for rental inspections and registrations. See id.

B. House Bill 1313

Two years later, in 2013, the General Assembly introduced House Bill 1313. This bill initially contained a provision barring local inspection and registration fees on rental units. But it too was removed, and the final bill instead placed an approximately one-year moratorium on imposing new, or increasing existing, inspection or registration fees. See P.L. 149-2013, § 1 (codified at Ind. Code § 36-1-20-4 (Supp. 2013) ). It also directed that an interim study committee investigate the "regulation of residential leases by political subdivisions." Id. at § 2.

That fall, the committee heard testimony on the issue. One side was concerned that the fees were becoming too costly, negatively impacting housing affordability and new rental development. Yet others claimed that the fees charged were fair and reasonable, and that they failed to even cover program administration costs.

Among the fees' defenders were representatives from Bloomington and West Lafayette. A representative from Bloomington testified that its program began in 1961, that renters make up 67% of its housing market, and that the city's program protects the welfare of its citizens and the character of the city itself. West Lafayette representatives explained that the city has had an inspection program since 1976, the number of rental units is increasing, and the "program protects property and assures parents of students that housing is safe."

C. House Bill 1403

Several months later, in January 2014, the General Assembly introduced House Bill 1403 to significantly amend Chapter 36-1-20. See P.L. 193-2014, §§ 2–9. In relevant part, the bill included a provision—the "Fee Restriction"—prohibiting a political subdivision from charging rental-registration fees over $ 5. About two weeks after the bill with the Fee Restriction was first read, a West Lafayette Representative introduced an amendment adding the "Fee Exemption." The Fee Exemption specified that the Fee Restriction would "not apply to a political subdivision with a rental registration or inspection program created before July 1, 1984." Id.

The Legislative Services Agency issued a fiscal impact statement analyzing the proposed legislation. The statement concluded, "[t]here are 14 cities or towns that have rental inspection programs .... Two of those programs, Bloomington and West...